Monday, February 19, 2018
Business

Duke Energy officials testify about why the board of directors lost faith in CEO Bill Johnson

RALEIGH, N.C. — After two days of inquiries into the ouster of former Progress Energy CEO Bill Johnson, two questions remain: Will Progress and Duke Energy continue as one company, and if so, who will lead it?

The North Carolina Utilities Commission all but threatened to reopen hearings into the merger agreement that formed the largest utility in the nation on July 2. The new combined Duke Energy board angered the commission when it removed Johnson as head of the merged company less than a day after he was appointed — a move that not only stunned regulators but also investors, analysts, employees and customers.

"The difficulty here," commission chairman Edward Finley said during testimony Friday is the two utilities "told us one thing and promised us it was going to happen, and it didn't happen."

The commission is considering three options: do nothing and let the merger stand; develop a settlement agreement outlining how the company will move forward, including possibly with a different CEO; reopen the merger hearings, which alone could trigger the breakup of the merger because the deadline to complete the deal expired July 8.

The unusual move to haul in senior members of Duke and Progress highlighted how much Johnson's ouster had upset the Carolina regulators.

Ann M. Gray, the director who ran the executive board meeting during which Johnson was fired, testified Friday that the majority of the combined board's members lost confidence in Johnson in the lead-up to the merger because of a "controlling" management style that did not embrace contrary opinions.

Gray said Johnson's handling of the broken Crystal River nuclear plant in Citrus County and Progress' nuclear fleet in general troubled Duke board members over the past six months. She said Johnson did not make needed improvements in Progress' nuclear operations despite requests from Duke.

But she noted that her first concerns about Johnson arose early in the merger negotiations, when Johnson described himself to the board "as a person who liked to learn but didn't like to be taught."

"That comment stayed with me," Gray told the commission. "It was the first flag."

Finley, the commission chair, asked Gray if she knew that the quote was originally attributed to Winston Churchill.

Gray said she didn't know that but thought of it more as an indication that Johnson had a "controlling" management style.

Gray and fellow board member Michael Browning, who also testified Friday, said it became apparent that Johnson's leadership style did not mesh with Duke Energy's corporate culture.

Gray and Browning said their biggest concerns first arose in January and continued over the next six months, including:

• Progress Energy's last-minute presentation to the Duke board of a settlement agreement over Crystal River with Florida regulators. Browning said the presentation was inadequate compared to what he had come to expect from Duke executives. In particular, it lacked details about the costs of fixing versus shutting down the plant, he said.

• Progress Energy's promise that Crystal River would return to service in by the first quarter of 2012. "That turned out not to be the case," Browning said.

• Johnson's failure to take Duke CEO Jim Rogers to meet with Progress' insurance company so Rogers could hear first hand the insurer's view of paying for damages at Crystal River. That meeting, Gray said, never happened.

"We waited about nine weeks and got a telephone call," Gray told the North Carolina Utilities Commission. "There have been many failed deadlines with Crystal River."

Things came to a head for Duke board members, Gray said, when the insurer, the Nuclear Electric Insurance Ltd., sent a letter in mid May about a "serious situation" at Crystal River. Progress did not send the letter to Duke until two weeks later, Gray said. Gray was not asked to explain the "serious situation."

Johnson, who testified on Thursday, told the commission that Duke Energy came down with a bad case of "buyer's remorse" in the months leading up to its merger with Progress Energy.

Johnson denied the allegations that he was autocratic. He also said he tried to attend several Duke board meetings but was told by Rogers, who was also chairman of old Duke's board, that there was "no need to."

"'Everything's fine,'" Johnson said Rogers told him. "'There's no need to come to the board.'"

Johnson said no one ever told him that Duke's board was having problems with his management style or actions.

Rogers, who was the first to testify in the investigation on July 10, described Johnson as having a "lack of transparency." But the hearings have raised questions about Rogers, too, and whether he was fully informing the Duke board and Johnson about what was going on.

"Were you aware that Mr. Johnson wanted to come address the Duke board?" Commissioner ToNola D. Brown-Bland asked Gray, the Duke board director.

"No," Gray said.

The commission has given a deadline for parties in the case to file documents for the investigation by July 31.

Ivan Penn can be reached at [email protected] or (727) 892-2332.

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